European Banking Crisis

Posted Feb 10, 2016 by Martin Armstrong

European banks are in a real crisis. They have been decimated by fines and trading after they tried to mimic their New York competition without the same expertise. Then they had to use euro debt of member states as reserves. Next came the rising taxes and the push to enforce taxation which has seriously harmed the European economy. Add to this toxic brew the stupid sanction of Russia that seriously reduced trade from manufacturing to agriculture. We have the collapse in commodities which has added to the bad loan nightmare. Even the biggest oil companies like BP are clueless when it comes to forecasting their own production and have posted the worst numbers in 20 years. Now stir in the collapse in the euro, and voilà: we have the banking crisis extraordinaire.

On Tuesday, Deutsche Bank’s co-CEO John Cryan has come out trying to quell fears about the bank’s stability by stating that the bank’s balance sheet “remains absolutely rock-solid,” investors are growing very nervous about the health of European banks as a whole. Now comes the collapse in oil prices and that means only more bad loans ahead.

Deutsche Bank’s stock has fallen 37% so far this year. Our two charts illustrate that the share price has fallen below the record lows of the 2007-2009 crisis in terms of dollars. This does not bode well for the shares in euro. The credit default swaps on Deutsche Banks have sky-rocketed, showing that the cost of insuring Deutsche Bank’s debt will affect the bulk of investors in the future.